LP v. Lloyd Mandell (2011)

Memorandum of Decision on Plaintiffs' Motion for Summary Judgment (No. 121);  Defendant's Objection to Plaintiff's Motion for Summary Judgment (No. 123);  and Defendant's Cross Motion for Summary Judgment (No. 124)

Procedural/Factual Background

Generation Partners, L.P. and Generation Capital Partners, L.P., (hereinafter referred to as the plaintiffs) commenced this action against the defendant, Lloyd Mandell, by service of process on February 22, 2009.   On May 11, 2009, the defendant filed a request to revise the complaint and on July 7, 2009, the plaintiff's filed the now operative Revised Complaint (No. 109).   On December 15, 2009, the defendant filed an answer and special defenses.

The facts, as the plaintiffs allege in their complaint, are as follows.   The plaintiff, Generation Partners, L.P. is a private equity firm and the general partner of the plaintiff Generation Capital Partners, L.P. The plaintiffs formed a partnership pursuant to an agreement of limited partnership on August 29, 1995.   The defendant was admitted to Generation Capital Partners, L.P. as a “special limited partner” on October 4, 1996.   Under the terms of the agreement a condition of admission as “special limited partner” and “a condition precedent to his receipt of the benefits associated therewith” was the defendant's acceptance of the terms of the partnership agreement.

The partnership agreement stipulated that partners would receive payments of shares of the profits resulting from the partnership's investments, called “carried interest.”  “Carried interest” payments would be made based on a formula which calculates the estimated values of investments.   Once the investments are realized and the actual value of profit is known the “carried interest” paid to partners would then be compared to the actual profit made, and the partners would be obligated to give the partnership back any excess amounts that were paid to them as “carried interest.”   The plaintiffs refer to this as the “giveback obligation.”

The plaintiffs allege that the defendant accepted payments of “carried interest” from the partnership and reported these payments and paid taxes on them in a manner that shows they were payments made pursuant to the partnership agreement.   On August 20, 2008, Dorothy Jatzen, Controller of Generation Partners, emailed the defendant requesting that he pay his “giveback obligation” of $220,510 by September 5, 2008.   On September 8, 2008, Jatzen emailed the defendant again asking when the plaintiffs could expect the defendant to pay his “giveback obligation” amount.   As of November 25, 2008, the defendant had not paid his “giveback obligation,” and Generation Partners sent him a letter demanding payment no later than December 5, 2008.   The defendant has refused to pay the “giveback obligation” to the plaintiffs.   The plaintiffs bring claims of breach of contract in count one, unjust enrichment in count two, quantum meruit in count three, and statutory theft in count four, all based on the defendant's refusal to pay the demanded “giveback obligation” amount.

On November 12, 2010, the plaintiffs filed a motion for summary judgment with the following attached evidence:  portions of the transcript from the deposition of Lloyd Mandell, portions of the transcript from the deposition of general partner at Generation Capital, Mark Jennings, a copy of the agreement of limited partnership, an email chain between Jatzen and the defendant from August of 2008, and copies of the defendant's tax returns for years 1999–2005.   The defendant filed an objection to this motion and his own cross-motion for summary judgment on December 15, 2010.   The defendant attached his own affidavit as evidence.   On January 21, 2010, the plaintiffs filed a memorandum in further support of their motion for summary judgment and in opposition to the defendant's cross-motion.   They attached more deposition testimony from the defendant and Jennings, an affidavit from Jatzen, an unsigned copy of the agreement of limited partnership, and the giveback agreement.   The defendant then filed a reply brief in support of his motion for summary judgment.   The motion and cross-motion were argued at short calendar on March 28, 2011.

Discussion

“Practice Book § 17–49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.   In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.”  (Internal quotation marks omitted.)  Sherman v. Ronco, 294 Conn. 548, 553–54, 985 A.2d 1042 (2010).

“In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact.   The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law.   The courts hold the movant to a strict standard.   To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ․ As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent ․ When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue ․ Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ․ It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue.   Mere assertions of fact ․ are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17–45].”  (Internal quotation marks omitted.)  Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 10–11, 938 A.2d 576 (2008).  “Summary judgment may be granted where the claim is barred by the statute of limitations.”  Doty v. Mucci, 238 Conn. 800, 806, 679 A.2d 945 (1996).

I

Statute of Limitations

Before reaching the merits of the controversy, the court must address defendant's claim of judgment on all counts on the ground that the claims brought by plaintiffs are time barred.   The defendant argues in his memorandum in support of his cross-motion for summary judgment that all of the plaintiffs' claims are barred by the applicable statutes of limitations.   The defendant argues that since he never signed a contract with the plaintiffs, the statute of limitations time period for the breach of contract, quantum meruit, and unjust enrichments claims should have started to run in 1996 when he refused to sign the “giveback agreement.”   Or alternatively, the time period should have started to run in 2000 when the plaintiffs made the disputed payments to the defendant.   The defendant also argues that the plaintiffs' statutory theft claim is time barred under General Statutes § 52–577, because the alleged wrongful conduct occurred in 2000 when the defendant allegedly accepted payment that he was not entitled to.

In their opposition to the defendant's motion for summary judgment, the plaintiffs argue that their claims are not time barred.   First, they argue a breach of contract cause of action, as well as actions in unjust enrichment and quantum meruit, accrue at the time of the alleged breach or injury, which could not have occurred until he refused to pay his “giveback obligation” amount in 2008.   Second, the plaintiffs argue that the statutory theft claim is brought within three years of the alleged theft, which occurred when the defendant intentionally kept money after it was demanded from him in 2008.

All parties agree that § 52–576 applies to the breach of contract, quantum meruit and unjust enrichment claims.   Section 52–576 states “No action for an account, or on any simple or implied contract, or on any contract in writing, shall be brought but within six years after the right of action accrues ․” “While the statute of limitations normally begins to run immediately upon the accrual of the cause of action, some difficulty may arise in determining when the cause or right of action is considered as having accrued.   The true test is to establish the time when the plaintiff first could have successfully maintained an action.”  (Internal quotation marks omitted.)  Engleman v. Connecticut General Life Ins. Co., 240 Conn. 287, 294 n.7, 690 A.2d 882 (1997).  “[I]n an action for breach of contract ․ the cause of action is complete at the time the breach of contract occurs, that is, when the injury has been inflicted.”  (Internal quotation marks omitted.)  Torringford Farms Assn, Inc. v. Torrington, 75 Conn.App. 570, 577, 816 A.2d 736 (2003).   Unjust enrichment and quantum meruit claims are most analogous to contract claims and are subject to the six-year statute of limitations as well.   See Bourbeau v. Alph Q Inc., Superior Court, complex litigation docket at Hartford, Docket No. X03 CV 05 4015076 (May 20, 2008, Langenbach, J.).

“[T]he statute of limitations for claims of conversion and statutory theft is the three year period applicable to torts, set forth in General Statutes § 52–577.”  Certain Underwriters at Lloyd's, London v. Cooperman, 289 Conn. 383, 408, 957 A.2d 836 (2008).  Section 52–577 provides:  “No action founded upon a tort shall be brought but within three years from the date of the act or omission complained of.”  “The date of the act or omission complained of is the date when the ․ conduct of the defendant occurs.”  Certain Underwriters at Lloyd's, London v. Cooperman, supra, 408.

In the present case, the plaintiffs allege that the defendant's refusal to pay his “giveback obligation” amounts to the breach of contract, or if there is no contract, it is the basis for a quantum meruit or unjust enrichment claim.   Therefore, the date when the defendant refused to pay this obligation would be the date that the plaintiff could first successfully maintain a cause of action.   In 1996 when the defendant refused to sign the “giveback agreement,” or 2000 when he received payments, the plaintiffs would not have any grounds assert a claim in court.   The plaintiffs could not bring suit for refusal to sign an agreement, and the plaintiffs could not claim wrongdoing when the defendant accepted estimated payments they voluntarily made to him until the amount of the “giveback” had been calculated based on actual investment returns and defendant had been asked—but refused—to refund that amount.   In essence, the plaintiffs did not encounter any injury until 2008.   The plaintiffs have attached an email from Jatzen, dated August 29, 2008, in which the plaintiffs demand payment from the defendant for the first time.   This is the earliest point in time that the plaintiffs could have suffered an injury because they demanded payment that they thought they were entitled and could only then discover the defendants refusal to pay.   Since the suit was commenced on February 22, 2009, commencement is well within the six-year statute of limitations for a breach of contract, quantum meruit or unjust enrichment claim.

As for the statutory theft claim, the plaintiffs allege that the same actions by the defendant are the basis for statutory theft.   Therefore, the first time the defendant could have possibly engaged in the conduct complained of would have been in August 29, 2008, when the plaintiffs had calculated the actual amount of overpayment and asked for refund.   Again, the plaintiffs brought suit within six months of the alleged conduct and injury which falls within the three-year period allowed by § 52–577.   For the foregoing reasons the defendant's motion for summary judgment on grounds that the plaintiffs' claims are barred by applicable statutes of limitations must be denied.

II

Breach of Contract

The plaintiffs argue in their memorandum in support of the motion for summary judgment that the defendant accepted admission as a “special limited partner” with the plaintiffs and thereby accepted the terms of the “limited partnership agreement,” which unambiguously provides that limited partners will have a “giveback obligation.”   The defendant then allegedly breached this agreement when he refused to honor the “giveback obligation” and pay the giveback amount.   The defendant argues in his cross-motion and in opposition to the plaintiffs' motion for summary judgment that the breach of contract claim must fail because there is no evidence that a contract was ever formed between the plaintiffs and the defendant, as there exists no signed agreement between them.   The defendant also argues that he was never officially admitted as a “special limited partner,” because a signed agreement is required for this.   No copy of any counterpart of the Partnership Agreement signed by the defendant has been submitted by the plaintiffs either from their own records or from documents obtained in discovery from the defendant.   Defendant's affidavit of December 15, 2010, submitted in support of his cross motion for summary judgment states at ¶ 15:  “I never executed a counterpart of the Partnership Agreement (as required by Section 1.1 of the Partnership Agreement) or otherwise assented to the terms of the Partnership Agreement.”   Plaintiffs point the court to deposition answers of the defendant where he gave possibly inconsistent answers about not signing the Partnership Agreement ¹ , but, for purposes of this motion for summary judgment, the court must view the evidence most favorably to the nonmoving party.   Even if defendant had made an evidentiary admission contrary to what he said in his affidavit, that admission would not necessarily be conclusive on him.   Because they are merely evidence, evidentiary admissions can be disregarded by the trier of fact.   Tait's Handbook of Connecticut Evidence, 3d ed. § 18.6.3(c).  The same reasoning applies to defendant's statements in ¶¶ 6 and 12 of his affidavit that he was requested on two occasions to sign plaintiff's form “Giveback Agreement” but refused on each occasion to do so, and in ¶ 11 that “Ultimately, Mr. Jennings [his supervisor while employed by plaintiffs] and I never agreed, orally or in writing, to any “giveback”terms.”   There is clearly a genuine issue of fact on the issues whether or not there is a counterpart of the Partnership Agreement signed by the defendant or whether or not he ever signed a “giveback agreeement.”   And those issues would be material because the Partnership Agreement at ¶ 1.11 requires that each new special limited partner shall execute and deliver a counterpart of the partnership Agreement;  and at ¶ 7.7(a) requires that each limited partner receiving a distribution of Carried Interest shall have signed a “giveback agreement.”

In their reply memorandum in furtherance of their motion for summary judgment, the plaintiffs argue that an agreement was formed regardless of whether the contract was actually signed.   Even disregarding the partnerships' own requirements for signed written agreements, there is still a genuine issue of fact as to whether or not there was a meeting of the minds on the terms of the partnership agreement and the defendant's alleged giveback obligation.

“The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages.”  (Internal quotation marks omitted.)  Seligson v. Brower, 109 Conn.App. 749, 753, 952 A.2d 1274 (2008).  “An agreement is [t]he union of two or more minds in a thing done or to be done;  a coming together of parties in opinion or determination ․” (Internal quotation marks omitted.)  Viera v. Cohen, 283 Conn. 412, 429, 927 A.2d 843 (2007).  “It is a fundamental principle of contract law that the existence and terms of a contract are to be determined from the intent of the parties ․ The parties' intentions manifested by their acts and words are essential to the court's determination of whether a contract was entered into and what its terms were ․ Whether the parties intended to be bound without signing a formal written document is an inference of fact for the trial court ․” MD Drilling & Blasting, Inc. v. MLS Construction, LLC, 93 Conn.App. 451, 454–55, 889 A.2d 850 (2006).  “In order for an enforceable contract to exist, the court must find that the parties' minds had truly met ․ If there has been a misunderstanding between the parties, or a misapprehension by one or both so that their minds have never met, no contract has been entered into by them and the court will not make for them a contract which they themselves did not make.”  Id., 465.  “Parties are bound to the terms of a contract even though it is not signed if their assent is otherwise indicated.”  (Internal quotation marks omitted.)  Aquarion Water Co. of Connecticut v. Beck Law Products and Forms, LLC, 98 Conn.App. 234, 239, 907 A.2d 1274 (2006).²

The plaintiffs have presented the following facts in an attempt to establish that the defendant assented to the “limited partnership agreement” and the “giveback obligation,” despite the lack of a signed agreement.   The plaintiffs attach deposition testimony given by the defendant which shows that the defendant was familiar with the “giveback obligation” and he prepared spreadsheets that would be used for calculating “carried interest” payments.   Also, the defendant and Jennings both testified that the defendant received payments from the plaintiffs without objection.   In her affidavit, Jatzen states that she worked closely with the defendant when he was employed by Generation Partners and she observed him creating documents and providing data for other documents which calculated payments that should be made to him.   She also states that he acted as if he were a special limited partner at all times.   The plaintiffs also attached the defendant's tax returns for years 1999–2005 in which the defendant listed payments made to him by Generation Partners as “income from partnerships.”

In contradiction the defendant states, in his affidavit, that he never signed the “giveback agreement” because he did not approve of the terms.   He also states that he voiced his objections to the “giveback agreement” to Jennings.   In his deposition he refers to himself as “co-investor” rather than special limited partner, and he claims that payments made to him were a form of incentive compensation, not “carried interest” payments.   This evidence contradicts the plaintiffs' evidence given to support the inference that the defendant assented to the contract and displayed his intention to be bound by his actions and by holding himself out as a limited partner.   The plaintiffs point out that the defendant appears to contradict his own deposition testimony on many points, including whether he signed a partnership agreement.   This just further demonstrates, however, that there is conflicting evidence and testimony that cannot be appropriately scrutinized for its credibility in the context of summary judgment.   The court finds the conflicting testimony and affidavits show that a genuine issue of fact as to whether the defendant assented to the contracts exists, and therefore, all parties' motions for summary judgment on the breach of contract claim must be denied.

III

Unjust Enrichment and Quantum Meruit

In their motion for summary judgment, the plaintiffs argue that they are entitled to restitution under the theories of unjust enrichment and quantum meruit because the defendant was unjustly enriched by retaining the “giveback obligation” amount and refusing to pay it.   The defendant argues that the plaintiffs are not entitled to restitution because they cannot establish the following elements of such a cause of action:  that the defendant wrongly benefitted from his refusal to pay the giveback obligation;  that the defendant is unjust in refusing to pay, and that the plaintiffs have suffered a detriment due to his actions.

“Unjust enrichment applies wherever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract ․ A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another ․ With no other test than what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and apply this standard ․ Unjust enrichment is, consistent with the principles of equity, a broad and flexible remedy ․ Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefitted, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment.”  (Internal quotation marks omitted.)  Vertex, Inc. v. Waterbury, 278 Conn. 557, 573, 898 A.2d 178 (2006).

“Quantum meruit is a theory of contract recovery that does not depend upon the existence of a contract, either express or implied in fact ․ Rather, quantum meruit arises out of the need to avoid unjust enrichment to a party, even in the absence of an actual agreement ․ Quantum meruit literally means as much as he has deserved ․ Centered on the prevention of injustice, quantum meruit strikes the appropriate balance by evaluating the equities and guaranteeing that the party who has rendered services receives a reasonable sum for those services.”  (Citations omitted;  internal quotation marks omitted.)  Gagne v. Vaccaro, 255 Conn. 390, 401, 766 A.2d 416 (2001).  “A determination of a quantum meruit claim requires a factual examination of the circumstances and of the conduct of the parties.”  (Citations omitted;  internal quotation marks omitted.)   184 Windsor Ave., LLC v. Connecticut, Superior Court, judicial district of Hartford, Docket No. CV 03 4018076 (May 16, 2008, Stengel, J.).

The defendant gained income, and therefore was benefitted by payments the plaintiffs made to him.   The plaintiffs suffered a detriment because they now cannot recoup money that was paid out which they believed would be paid back to them if their estimates were incorrect.   Yet, the same issues of fact that arose in the context of a breach of contract analysis arise here.   Construing all the evidence most favorably to the nonmoving party in each instance there are genuine issues whether the defendant accepted payments as part of his regular compensation for work done for the plaintiffs, as he claims in his affidavit and deposition or whether he accepted those payments as “carried interest” subject to a giveback obligation.   If the defendant's statements are true he would not be unjust in keeping payment that he earned through his work for the plaintiffs.   The plaintiffs' affidavits and testimony claim the opposite, that the defendant portrayed himself as a special limited partner and the plaintiffs paid him under the expectation that he would eventually pay them back if needed.   Since, whether the defendant was unjust in refusing payment is unsettled, the plaintiffs' and defendant's motions for summary judgment on the unjust enrichment and quantum meruit claims must be denied.

IV

Statutory Theft

The plaintiffs argue in their motion for summary judgment that there is no issue of fact that the defendant has committed statutory theft because he accepted payment from the plaintiffs and now refuses to pay the amount required by the “giveback obligation,” which amounts to him withholding property from the plaintiffs, that he has no legal right to.   The plaintiffs add that if the defendant never had any “giveback obligation” as he argues, he has still committed statutory theft because without such an obligation, the money paid to him would have been improperly paid and he still would have no right to keep it.   The defendant argues in his cross motion for summary judgment that the plaintiffs cannot establish their claim of statutory theft because they cannot establish the defendant had the intent to wrongfully withhold the money from the plaintiffs.

General Statutes § 52–564 states:  “Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble damages.”  “Statutory theft, under § 52–564, is synonymous with the crime of larceny as defined in General Statutes § 53a–119.   A person commits larceny within the meaning of § 53a–119 ‘when, with intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully takes, obtains or [withholds] such property from an owner.’  Stuart v. Stuart, 112 Conn.App. 160, 174–75, 962 A.2d 842 (2009), rev'd on other grounds 297 Conn. 26, 996 A.2d 259 (2010).  “Because larceny is a specific intent crime, the state must show that the defendant acted with the subjective desire or knowledge that his actions constituted stealing.”   State v. Papandrea, 120 Conn.App. 224, 230, 991 A.2d 617, cert. granted on other grounds, 297 Conn. 902, 994 A.2d 1289 (2010).  “One who takes property in good faith, under fair color of claim or title, honestly believing that ․ he has a right to take it, is not guilty of larceny even though he is mistaken in such belief, since in such case the felonious intent is lacking.”  (Internal quotation marks omitted.)  Id., 231.

In the present case, the plaintiffs assert that the defendant received $838,639 in estimated “carried interest” payments, that he was aware of the conditions those payments were made under, specifically that they were subject to a “giveback obligation,” and he subsequently refused to pay the giveback amount.   The plaintiffs argue that these facts show that the defendant intentionally deprived plaintiffs of their property.   Larceny and statutory theft, however, require specific intent.   Here the defendant has presented evidence through his affidavit that he refused to sign the giveback agreement because it did not “contain a provision that mirrored the vesting arrangement for my incentive compensation, as Mr. Jennings had previously orally promised.”   The defendant further states in his affidavit that he believed he “was entitled to receive base, salary, an annual bonus, and additional incentive compensation from [his] employment,” and that “the total amounts paid to [him] were fair and reasonable compensation for the services [he] performed, in light of the customs and norms of the time.”   There are conflicting assertions of fact here, as the defendant claims he never accepted a “giveback agreement” and believed he was entitled to the money paid to him, while the plaintiffs assert that the plaintiff knew full well that all of the money did not belong to him indefinitely.   Because there is a genuine issue of material fact as to whether the defendant had the requisite intent for statutory theft, both the defendant's and the plaintiffs' motions for summary judgment on count four must be denied.

Order

For the foregoing reasons both the plaintiffs' motion for summary judgment and the defendant's motion for summary judgment are denied on all counts as there are genuine issues of material fact to be decided by the trier of fact.

Alfred J. Jennings, Jr.

Judge Trial Referee

FOOTNOTES

FN1. For instance, defendant Mandell testified at deposition:  “I have not suggested that I didn't sign the [Special Limited Partner] Admission Agreement.  (Tr. At 13:06–13);  and when later asked whether or not he signed the Admission Agreement, he testified “I'm not sure.”  (Tr. 15:  13–15.).  FN1. For instance, defendant Mandell testified at deposition:  “I have not suggested that I didn't sign the [Special Limited Partner] Admission Agreement.  (Tr. At 13:06–13);  and when later asked whether or not he signed the Admission Agreement, he testified “I'm not sure.”  (Tr. 15:  13–15.)

FN2. The plaintiff cites JP Morgan Chase & Co. v. Pierce, 517 F.Sup.2d 954, 969 (E.D.Mich.2007) (holding that restrictive covenants would be enforced against a party who never signed the contract because there was “substantial evidence that JP Morgan and Pierce intended that the restrictive covenants would apply”) but in that case, decided under the Federal Rules of Civil Procedure and the substantive law of Delaware, it was undisputed that Pierce had received and accepted certain stock awards provided pursuant to the employer's stock award agreement that she claimed she had never signed.   In this case, however, Mr. Mandell disputes that the payments he received were retained interest payments under the Partnership Agreement, but rather claims they were incentive compensation..  FN2. The plaintiff cites JP Morgan Chase & Co. v. Pierce, 517 F.Sup.2d 954, 969 (E.D.Mich.2007) (holding that restrictive covenants would be enforced against a party who never signed the contract because there was “substantial evidence that JP Morgan and Pierce intended that the restrictive covenants would apply”) but in that case, decided under the Federal Rules of Civil Procedure and the substantive law of Delaware, it was undisputed that Pierce had received and accepted certain stock awards provided pursuant to the employer's stock award agreement that she claimed she had never signed.   In this case, however, Mr. Mandell disputes that the payments he received were retained interest payments under the Partnership Agreement, but rather claims they were incentive compensation.

Jennings, Alfred J., J.T.R.